Investor sentiment was battered by developments Wednesday, when Italy's borrowing costs rose and Cyprus said it may seek an emergency bailout this week.

Yet another troubling sign came out of Spain, whose 10-year borrowing rate inched up to 6.71 percent from 6.67 percent. That is close to the 7 percent rate that led Greece, Portugal and Ireland to seek financial rescue packages.

European stocks were lower in early trading. Britain's FTSE 100 lost 0.9 percent at 5,432.85. Germany's DAX fell 0.7 percent to 6,108.42 and France's CAC-40 shed 0.9 percent to 3,004.01.

Wall Street appeared headed for a choppy session, with futures swinging between gains and losses. Dow Jones industrial futures was nearly flat at 12,423 while and S&P 500 futures were nearly unchanged at 1,308.40.

Benchmarks in Singapore, Taiwan, Indonesia and Thailand also fell. But South Korea's Kospi went against the trend, gaining 0.7 percent at 1,871.48.

Moody's, the credit ratings agency, downgraded Spain's government debt three notches late Wednesday, placing it one level above junk status. It downgraded Cyprus's debt by two, pushing it deeper into junk rating.

Italy, meanwhile, had setbacks of its own. Its 10-year borrowing rate rose to 6.07 percent from 6.02 percent, and the interest rate on its one-year bonds also rose sharply.

The situation may come to a head Sunday, when Greek voters will choose a new government. That will determine whether the country sticks to its highly unpopular austerity program of tax hikes and spending cuts in order to continue receiving international financial aid.

If political parties are elected that favor reneging on the program - considered by many Greeks to have imposed intolerable hardships - the country's international bailout and its membership in the 17-nation euro currency union would be at risk.

"The Greek election will undoubtedly be seen as a landmark event in history, as it goes to the core of Greece's continuation in the eurozone and the fate of the region itself," Cameron Peacock of IG Markets in Melbourne said in a market commentary.

Apart from the financial maelstrom in Europe, investors are also worried about the pace of growth in the U.S. and China, the world's first- and second-largest economies.

Investors have been holding on to hopes that both countries' respective central banks will provide some type of stimulus.

Dickie Wong, executive director of research at Kingston Securities Ltd. in Hong Kong, said he expects the Fed might renew its "Operation Twist" program under which it sells shorter-term securities and buys longer-term bonds to keep their rates down. The current program expires at the end of June.

The Fed has also done two rounds of bond purchases to try to lower long-term interest rates and encourage borrowing and spending.

"The market highly expects the Fed will take some steps to stimulate economic growth," Wong said. "Next week's Fed Open Market Committee meeting will be the last one before Operation Twist ends, so I think they will introduce some kind of new measure."

Hong Kong's Esprit Holdings Ltd. shares extended their slide, falling 12.4 percent after the clothing retailer said Chairman Hans-Joachim Korber resigned less than 24 hours after its CEO quit. The company is struggling to execute a turnaround amid weakness in Europe, its biggest market, and growing popularity of rival chains.

Benchmark oil for July deliver was up 11 cents to $82.74 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 70 cents to finish at $82.62 per barrel on the Nymex on Wednesday.

In currency trading, the euro fell slightly to $1.2548 from $1.2589 late Wednesday in New York. The dollar fell slightly to 79.31 yen from 79.33 yen.